You re the Finance Person You are SUPPOSED to Know!

Transcription

1 You re the Finance Person You are SUPPOSED to Know! JOHN TUOHY, CPA DEPUTY TREASURER, ARLINGTON COUNTY ANNE GIBSON POARCH - FINANCIAL ADVISOR, WELLS FARGO ADVISORS, LLC

2 Disclaimers Anne Poarch Wells Fargo Advisors did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. John Tuohy Any opinions expressed are mine and do not necessarily reflect the opinions of the Arlington County Treasurer s Office, the GFOA or any other group of rational human beings.

3 Financial Advisors? That guy on the radio The magazine in your dentist s office The show you saw on PBS Almost anybody on cable TV Your brother-in-law The finance director at work And if all else fails a trained professional financial advisor

4 Scenario 1 I have a pile of money A long-time staff person is leaving and will be receiving a leave payout. They come to you and ask: What should I invest my money in?

5 Scary Statistics From 1994 to 2004 tuition at public four year colleges has increased by an average of 83% in current dollars. Median house prices in the US have recovered to their 2004 levels

6 Patterns of Investor Irrationality Overconfidence - Rating oneself as above average when it comes to selecting investments. Hindsight bias - Believing that unpredictable past events, in retrospect, were obvious and predictable. Short-term focus - Inappropriately focusing on short-term risk versus long-term risk. Regret - Having illogical feelings of guilt because of a poor outcome Mental accounting - Mentally compartmentalizing investments while ignoring the aggregate portfolio Hot-hand fallacy - Perceiving trends where none exist and consequently taking action on this faulty observation

7 Scenario 2 I have no money A staff person comes in complaining that they have nothing saved and now their car needs a new transmission. Why does this always happen to me?

8 Scary Statistics Average amount Americans have saved less than $6,000 28% have NOTHING saved

9 Scenario 3 I have less than no money! A staff member comes to you with the following set of facts: They and their spouse make $80K per year They live in a $150,000 house with a $50,000 mortgage The owe $60,000 in credit cards!

10 Scary Statistics US consumer debt profile Average credit card debt: $15,480 Average mortgage debt: $156,474 Average student loan debt: $33,424 Proportion of adults surveyed who had not reviewed their credit report in the previous 12 months: 62 %

11 Hie the to a credit counselor Is the agency accredited by an independent third party? What services does the agency offer? What are the fees associated with the services provided? Is the counselor assigned to you a Certified Consumer Credit Counselor? Does the agency provide educational classes or workshops? National Foundation for Credit Counseling:

12 Scenario 4 I am getting a divorce An employee comes to you saying they are getting a divorce. Are there any financial implications they should know about?

13 Scary Statistics Only 30% of couples share financial decisions equally National divorce rate of 17 per 1,000 married people Standards of living decline 10%-40% after divorce for both men and women

14 Scenario 5 Aging parents An staff person comes to you saying their elderly mother can no longer take care of herself

15 Scary Statistics A quarter of adult children, mainly Baby Boomers, provide some form of care to a parent Adult children 50+ who work and provide care to a parent are more likely to have fair or poor health than those who do not provide care to their parents The total estimated aggregate lost wages, pension, and Social Security benefits of these caregivers of parents is nearly $3 trillion.

16 Scenario 6 I am thinking about retiring An employee comes to you saying they have now achieved normal retirement. Should they retire?

17 Scary Statistics 26% of people aged 50 to 65 have nothing saved for retirement Only 24% of those 55 and older felt very confident on knowing when they should start claiming their Social Security benefits 33% of seniors receive substantially all their income from Social Security

18 More Scary Statistics A couple retiring in 2012 with Medicare needed $163,000 in savings to have a 50% chance of covering health care costs during retirement. Only 42% of workers have tried to calculate what they ll need to save to maintain a comfortable standard of living during retirement. 33% of workers expect Social Security to be a major source of retirement income.

19 Today s retirement reality 17% 23% 60% 43% 26% 32% 69% 9% 22% Employee s responsibility Employee and company shared responsibility Company s responsibility From 1980 to 2010, the changes in employer sponsored retirement plan offerings has changed dramatically.

20 The three legged stool Defined benefit pension Savings Social Security

21 Defined benefit pension Virginia Retirement System (VRS) Independent plans Formula based Highest compensation Years of service Formula percentage May be adjusted for survivor benefit Vesting period

22 Savings (b) 401 (a) 401 (k) IRA Roth IRA Everything else

23 Social Security Most (but not all) employers in Virginia participate Formula based Income Number of quarters employed Benefit depends on age you begin Reduced Normal Delayed Highest possible benefit (2014) is $31,700. Average is $15,500

24 And if all else fails a trained professional financial advisor PARTNER in path to financial stewardship ADVOCATE for your dreams and goals COUNSEL for creation and ongoing health of your financial plan CRITICAL insight into realities of retirement SOUND voice of reason MAKE THE MOST OF YOUR RELATIONSHIP PREPARE ENGAGE CONNECT

25 Contact us? John Tuohy Anne Gibson Poarch